Yes, the FC2 CD works in rescue mode - I can mount /mnt/sysimage as if it were my working system. I haven't tried installing a standard kernel whilst in rescue mode, but I can't honestly see how it will help since a standard kernel install of 2.6.8.1 (latest on kernel.org) fails on my RH9 install with the same symptoms.
My only guess is that either something inherent in 2.6.x is incompatible with my hardware, or I am enabling something (or not as the case may be) in the kernel which specifically does not work with my hardware. I find the latter unlikely given I have no specialist hardware in the machine, I have installed 2.6.x countless times before, etc.
Having read through the previous items in this thread, I was inclined to agree with you that there was a compatibility issue between your hardware and the 2.6.x kernel, since you never seem to get past a very early stage of the kernel boot process. However, you've just said that the FC2 CD works in rescue mode, and that's 2.6.5-1.358 isn't it?
If you currently have RH9 installed with grub as the bootloader, you could do a quick test to see if the kernel and initrd from the FC2 CD will load from grub. You can extract these from the FC2 CD by copying the boot.iso image from the images/ directory of the CD and loopback mounting it:
mkdir /mnt/boot.iso mount -r -o loop boot.iso /mnt/boot.iso cp -p /mnt/boot.iso/isolinux/vmlinuz /boot/vmlinuz-fc2 cp -p /mnt/boot.iso/isolinux/initrd.img /boot/initrd-fc2.img
Then add an entry to boot that kernel and initrd pair to your grub.conf. You'll need to append "ramdisk_size=8192" to the kernel line due to the large initrd. If that boots (it'll boot into the FC2 installer), you might then try installing the FC2 i586 kernel RPM (same kernel, different initrd) and see how that goes.
Paul.